INTM261010 - HMRC Approach to UK Permanent Establishments in response to COVID-19 Pandemic

Background

The COVID-19 pandemic has resulted in significant disruption to international travel and business operations, including the locations of directors, employees and other individuals.

HMRC is very sympathetic to the disruption that is being endured.

We have been asked about HMRC’s response to the permanent establishment challenges posed by COVID-19. The presence of individuals in the UK as a consequence of COVID-19 raises questions about whether foreign companies could establish a taxable permanent establishment for UK corporation tax purposes

Overview

HMRC considers that the existing legislation and guidance in relation to permanent establishments, already provides flexibility to deal with changes in business activities necessitated by the response to the COVID-19 pandemic.

We do not consider that a non-resident company will automatically have a taxable presence by way of permanent establishment after a short period of time. Similarly, whilst the habitual conclusion of contracts in the UK would also create a taxable presence in the UK, it is a matter of fact and degree as to whether that habitual condition is met. Furthermore, the existence of a UK PE does not in itself mean that a significant element of the profits of the non-resident company would be taxable in the UK.

See INTM120185 for related guidance in relation to company residence

UK Permanent Establishments

With regard to Permanent Establishments (PEs), we consider that the current legislation, treaties and related guidance provides sufficient flexibility with regard to whether a PE has been created in the UK. In particular, s1141(1) CTA 2010 requires either that a business is carried on through a fixed place of business in the UK, or that an agent acting on behalf of the company has and habitually exercises authority to carry out the company’s business in the UK.

As INTM264430 makes clear, HMRC considers that a non-resident company will not have a UK fixed place of business PE after a short period of time as a degree of permanence is required. Similarly, whilst the habitual conclusion of contracts in the UK would also create a Dependant Agent PE in the UK, it is a matter of fact and degree as to whether that habitual condition is met. Furthermore, the existence of a UK PE does not in itself mean that a significant element of the profits of the non-resident company would be taxable in the UK. The attribution of profits to a UK PE would depend on the level of activity in the UK, and the relative value of that activity, in accordance with the guidance at INTM26700 onwards.

HMRC believes the above guidance is consistent with the guidance published by the OECD Secretariat on 3 April 2020.